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- Samuelson introduced the term revealed preference into the economics science in 1938. Since then there have been tremendous improvement in the literature. The revealed preference theory have been considered a major breakthrough in the theory of demand, because it has made possible the establishment of the law of demand on the basis of reveled preference axiom, Without the use of indifference curves and its restrictive assumptions. Regarding the ordering of consumers’ preference, the revealed hypothesis have the advantage over Hicks-Allen approach of establishing the existence and convexity of the indifferences curves.
Assumptions
i) Rationality. The consumer is assumed to be rational, in that he prefers bundles of goods that include more quantities of the commodities of the commodities.
ii) Consistency. The consumer behaves consistently, that is if he chooses bundle A over B in a situation where both where available for him, he will not choose B over A in any other situation if both bundles are available for him.
iii) Transitivity. If in any particular situation A>B and B>C then A>C
iv) The Revealed preference Axiom. The consumer, by choosing a collection of goods in any one budget situation, reveals his preference for that particular collection. The chosen bundle is revealed to be preferred among all other alternative bundles available under the budget constraint. The chosen basket of goods maximizes the utility of the consumer. The revealed preference for a particular collection of goods implies (axiomatically) the maximization of the utility of the consumer.
Wilfykil answered the question on March 20, 2019 at 08:10
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